Virtual Currencies Raise New Concerns for Payments Industry

The virtual currency, bitcoin, has opened up a whole new level of concern for the payments industry, according to Deborah Thoren-Peden, head of Pillsbury’s consumer and retail team as well as co-leader of the privacy, data security and information use team.

Many of the laws today, she summarized, address whether there is a monetary value which needs to be protected and help to ensure that consumers or businesses are protected in the event that a third party with control over funds encounters financial difficulties.

“To the extent that the bitcoin value presents similar risk or issues, and it falls within the scope of the laws, then it should be subject to such laws, the same as other payment providers. However, it should also be able to take advantage of permitted exceptions to such laws,” Thoren-Peden said.

The new Virtual Currency Guidance from the Financial Crimes Enforcement Network of the Department of the Treasury clarifies that decentralized virtual currencies that have no central repository and no single administrator, and that persons may obtain by their own computing or manufacturing, can be subject to the federal Bank Secrecy Act and its reporting and record keeping requirements, she explained.

However, Thoren-Peden cautioned, it is important for a party engaged in such activities to carefully look at the specific facts of its offering or services, as it might qualify under one of the exceptions allowed in the BSA for coverage of the money transmittal activity. “It is also important that the entity looks at all of its activities, as it might be subject to the BSA under another portion of the law. One thing that is crucial for businesses in the payment space to understand is that the state money transmittal licensure laws are independent of the BSA, and even if the entity qualifies for an exception from coverage by the BSA, it does not necessarily mean it is not subject to the state licensure requirements.”